An initiative of the Pennsylvania Housing Finance Agency (PHFA) has contributed to the development and new construction of mixed-income, single-family for-sale developments totaling 1,095 homes in 20 deteriorated urban areas.
Robert F. Bobincheck, director of PHFA’s office of strategic planning and policy, said: “The goal of the homeownership construction initiative (HCI) is to rebuild urban neighborhoods. One of the ways to do this is to attract a mixed-income population, which helps stabilize communities.” HCI is designed to attract homeowners in attractive duplex, townhouse, and detached-unit developments with parking and other amenities that would normally be found in suburban areas.
During the past four years, PHFA has provided nearly $30 million and leveraged over $223 million through HCI. In 2003, the National Council of State Housing Agencies gave PHFA an award for “encouraging new production” through its HCI program.
HCI funded a 50-unit development by the nonprofit Asociación de Puertorriqueños en Marcha (APM) that dramatically revitalized a decaying area of North Philadelphia. Other HCI funding contributed to the first large-scale single-family development in Chester in 30 years.
HCI also funded 25 family units on a former industrial site near downtown Hazleton and funded 50 affordable townhouses that complement nearby private market-rate development in Coatesville.
HCI typically requires a three-way partnership: a municipal entity, a for-profit builder or developer, and a nonprofit builder or developer. PHFA funding must be matched by the development sponsor at least one-to-one. Half of the sponsor’s match must come from the municipality. The leveraging ratio in approved applications has ranged from 5:1 to 17:1, Bobincheck said.
PHFA and other government funds subsidize the difference between the construction cost and the sale price. It cost approximately $137,000 to build the APM homes, which were sold two years ago for $55,000—and have recently been appraised at $95,000, Bobincheck explained. The buyers could sell and make a windfall profit, but none has chosen to do so, he said, adding that PHFA’s board is concerned about that possibility and is looking to prevent such action. APM is developing another 55 new homes adjacent to the original site that are expected to sell for between $85,000 and $100,000.
PHFA’s loan is made to the strongest of the three partners (the municipal entity, for-profit builder or developer, or nonprofit builder or developer) and is not made to the homeowner. “Our PHFA money stays in the community,” Bobinchek said, “rolling over and helping increase housing values through an innovative internal mechanism to finance HCI.”
PHFA provides 90 percent of its allocation for each development to the sponsor for project costs and sets aside 10 percent of the loan amount for an investment account consisting of securities of government or government-sponsored entities. PHFA expects that the total amount allocated for HCI developments will be recaptured over 30 years through the return on the securities.
Although PHFA’s HCI funds do not come with restrictions on buyers’ incomes, most municipal and federal funds in HCI developments require that buyers be low and moderate income (LMI). As a result, PHFA money may be used to construct moderately priced units while municipal and federal funds are used for LMI units.
PHFA’s HCI funds are provided early in the development process and are often used for site-acquisition, infrastructure, and construction costs. PHFA funds may not be used for any developer fees.
At least one HCI partner “must be a strong partner with the experience and ability to get things done” and one partner must attend a PHFA pre-development seminar, a requirement that has helped increase the quality of applications, Bobincheck said.
HCI-funded developments must have a minimum of 50 homeownership units in municipalities with a population of 50,000 or more and 25 units in municipalities with a population of less than 50,000.
Although HCI focuses on new construction, it has also provided funding for the rehabilitation of 30 for-sale condominiums in McKeesport and Meadville, in central and western Pennsylvania.
HCI is part of PHFA's homeownership choice programs (HCP). Earlier this year, PHFA started a new HCP program, the neighborhood revitalization initiative (NRI), which is designed to help municipalities revitalize urban areas by rehabilitating small numbers of vacant properties and constructing in-fill units for purchase as single-family units. It has the same partnership and matching-fund requirements as HCI.
The request for proposals for the next round of funding is expected to be available in March 2005, with proposals due in August 2005.